GRTgaz confident of launching single French gas hub in 2018

French transmission system operator (TSO) GRTgaz is confident of meeting a deadline of late 2018 for the launch of a single French gas market and EU funding is “not a prerequisite” for the project to move forward, an executive at the company has told ICIS.

The creation of a single French gas hub involves substantial infrastructure work to reinforce the French gas grid and remove bottlenecks that frequently cause higher prices in the south of the country.

French regulator CRE has backed the project and also approved a bonus/penalty scheme to push the project to completion by late 2018 (see ESGM 2 October 2014).

In an interview, chief strategy and marketing officer Olivier Aubert said that the company had gone through a number of administrative processes already but two main steps remain.

“The project has to be declared ‘of public interest’ by the government – we have no sign whatever that it will not be done but still it is an important phase, and we expect this to be done before year end. Then either before year end or during the first weeks of 2016, we expect our energy ministry to publish the final authorisation,” Aubert said.

“Government officials all have in mind the absolute need for this project and this specific timeline and have shown lots of good faith and willingness to make this project a reality.”

Diverging prices

Merging France’s hubs to create a single marketplace took on particular urgency during 2013-2014, as scarce LNG deliveries forced up the price of gas at PEG Sud. Between October 2013-September 2014, the PEG Sud Day-ahead premium to PEG Nord averaged €4.53/MWh, based on ICIS assessments. At its highest point, it reached €16/MWh.

With falling global LNG prices and an influx of deliveries to Europe, the pattern changed dramatically in the current gas year. Since the launch of the TRS hub, formed through the merger of PEG Sud and PEG TIGF on 1 April 2015, the southern Day-ahead premium has averaged just €0.356/MWh.

Even so, as future fluctuations in the global gas markets are difficult to predict, most French gas market stakeholders believe that a merger is still desirable in order to wipe out the price differential and better integrate southwest Europe with gas markets to the north.

Nevertheless, Aubert’s confidence in delivering the project contrasts with the expectations of market participants. Many foresaw delays of a year or longer, particularly after it came to light late in late 2014 that GRTgaz had still not taken a final investment decision (FID) on the two infrastructure projects required, known as Val de Saone and Gascogne/Midi.

Aubert said the company is awaiting the remaining government approvals, but this should be “a question of only a few months now, probably in early January we can proceed with the FID”.

Another cause for concern had been GRTgaz’ unsuccessful application for EU funds under the Connecting Europe Facility (CEF) for the Val de Saone project. A further call for CEF funding applications is now in progress, however Aubert downplayed the importance of gaining the European subsidy in order to move forward:

“Of course if we can obtain some subsidies we will do it but it is not a precondition for us for the project to be launched and constructed.”

The company is currently considering whether to apply in the latest round.

In the worst-case scenario, a non-physical merger of France’s hubs could take place as a stopgap until the new infrastructure was up and running, Aubert said. This would be costly, as it would involve importing LNG and socialising the cost, and is likely to be unpopular with shippers.

“Clearly the market is not willing to have GRTgaz purchasing gas which might be very expensive and that is absolutely normal,” he said.

Such a measure would only be used in the “unlikely” scenario of a few weeks’ or months’ delay, Aubert added. emma.slawinski@icis.com